I boot both my Cruzers, with U3 still on them, and do not experience the problem you describe.
I suspect the problem you describe is caused by your machine rather than the USB stick. Possible causes might be bad USB port, USB 1.1 port, processor overheating, bad power supply, low voltage to the machine.
I also think you need to re-evalutate your XP install approach. The 911cd.net forums might be a good place to check.
